Disney Unplugs Go.com, Cuts 400 Employees

The Walt Disney Co. (NYSE:DIG - news) on Monday slammed the door on its Go.com Web portal and said it will bring its separately traded, unprofitable Walt Disney Internet Group back into the Disney fol

LOS ANGELES (The Hollywood Reporter) --- The Walt Disney Co. (NYSE:DIG - news) on Monday slammed the door on its Go.com Web portal and said it will bring its separately traded, unprofitable Walt Disney Internet Group back into the Disney fold, making it the latest entertainment conglomerate to severely scale back its dot-com strategy.

The cutbacks mean the elimination of 400 Go.com jobs, mostly in Sunnyvale, Calif., and one-time charges in the second quarter of as much as $840 million, Disney said.

Go.com employees were notified Monday that their jobs had been eliminated, said Susan Murdy, a spokeswoman at Disney Internet Group. The portal is slated to close in about 30 days, and the Internet group's shares, which trade under the symbol DIG, will be converted to Disney stock as of March 20, she said.

The move ends more than a year of attempts by Disney to mold Go.com into a viable portal that was once expected to compete with such market leaders as Yahoo! and America Online. The online unit's turbulent history also included three rebrandings, from Infoseek to Go.com to the Walt Disney Internet Group; the arrest of a former top executive for possession of child pornography; and the loss of a copyright-infringement battle with rival search engine GoTo.com in which Disney was forced to redesign its logo for Go and pay GoTo.com $21.5 million as a settlement.

The company will continue to operate its content-driven Web sites, including ABC.com, ESPN.com, Movies.com and Disney.com. Steve Bornstein will remain chairman of the Internet group, Disney said.

Disney released the news after chairman Michael Eisner told the Financial Times during the World Economic Forum in Davos, Switzerland, that advertisers had abandoned the Internet. The Internet group's stock plummeted more than 30% on speculation that Disney was shutting down its online operations, and trading was halted for more than an hour. Trading resumed after Disney released a statement announcing that it would close Go.com and details on other changes to its Internet Group.

A Disney spokeswoman said the announcement's timing with the Financial Times report was "coincidental" and that changes at the Internet group had been in the works for some time.

Each outstanding share of Disney Internet Group will be converted into 0.19353 share of Disney common stock, resulting in the issuance of about 8.1 million new shares of Disney common stock. The conversion ratio is based on the market values of Disney and Disney Internet Group common stock averaged over 20 trading days beginning Dec. 7 and represents a 20% premium on the Internet group stock's value, Disney said.

Disney Internet shares closed at 5.86 on Monday, well below the stock's 52-week high of 29.

While Wall Street didn't anticipate Go.com's burial so soon, analysts said the decision to close the portal was inevitable because it never succeeded in defining itself as an Internet entity. "I think it's the right decision for Disney. It never gained traction in the Internet space despite repeated attempts," said Jordan Rohan, an analyst at Wit SoundView in New York.

Go.com's audience reach never extended beyond 28%, compared with a 75% reach for AOL and 70% for Yahoo, said Charlene Li, a research director at Forrester Research. "In the end, Go.com didn't really have a purpose within the Disney group," Li said.

Disney said Go.com's closure will result in a noncash write-off in the fiscal second quarter of about $790 million, or 37 cents a share, and costs related to severance and other items of $25 million-$50 million.